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Another less than glorious drill result from Sound Energy - top broker warns shares deserve to halve again

By Tom Winnifrith, The Sheriff of AIM | Wednesday 5 July 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Earlier in the week the disappointment was that the Italian Badile gas play had flopped. But at least the Moroccan excitement could allow James Parsons, the aggressive stock promoter who runs Sound Energy (SOU), to keep the plates spinning. we have news from Morocco. And it is more bollockese and not great news.

Sound states:

"Sound Energy is delighted to report the success of operations to date at the Koba-1 well at Sidi Moktar, onshore Morocco. The Company has successfully re-entered, completed, perforated and flared gas at surface from the Argovian reservoir (historically the main producing reservoir in the Kechoula discovery). A five metre interval was perforated in the Argovian reservoir at a measured depth of 1406 metres where the static pressure was measured at 98 bar, confirming a producible gas accumulation. The Company has now temporarily suspended the well in preparation for a rigless extended well test - after which the Company hopes to move rapidly to production. The Koba-1 well, drilled at the crest of the Kechoula discovery, is close to existing infrastructure and gas demand, including the large scale Moroccan state owned OCP Phosphate plant.

The Company believes the Sidi Moktar licences also contain significant pre-salt potential and notes the quantitive assesment prepared by a previous operator in 1998 which referred to exploration potential of the Sidi Moktar licences of up to 9 Tcf unrisked gas originally in place (gross) in the TAGI and Paleozoic. The Company will require the reprocessing of existing 2D seismic, acquisition of new 2D seismic and drilling results before forming its own volume estimates for the exploration potential of the Sidi Moktar licences.

The Company also advises that due to poor quality cement bonding across the Lower Liassic in the Koba-1, and likely the Kamar-1, wells, the Company no longer intends to immediately re-enter the Kamar-1 well (subject to agreement with the regulatory authorities). The Lower Liassic at Kechoula will therefore be evaluated at a later date together with the deeper pre-salt.

As a result, the rig will be immediately released from Sidi Moktar and will likely return to the Company's licences in Eastern Morocco."


So it was "pleased" to announce that Badile was non commercial. Now it is delighted that one well has encountered what was expected but that there are geo problems elsewhere so rigs have got to move on. Yup, I bet Parsons was really delighted in the way you would be if your dog got run over but at least the cat it was chasing made it across the road alive.

As I noted after the last bad news Parsons was "pleased" about, his shares have a premium rating on the basis that he had the Midas touch with the drill bit. Now we have had a clear miss and a partial hit in the space of a few days albeit neither on core acreage. The Parsons premium will be disappearing fast.

Indeed, the shares - 80p a few weeks ago but now 55p - could halve again according to a leading broker who this morning emailed his clients to warn:

"Sound Energy where I have always made clear that they had nothing and James Parsons was spinning plates – well looks like I am probably right judging by Monday ‘s RNS ! ……….There’s nothing wrong with spinning but you do need the fundamentals behind you and at £600mn they didn’t and didn’t have a single institution either which told you everything – it still £400mn having only lost £200mn and frankly it needs to lose another £200mn so don’t touch"

Well that is pretty clear and I will not be arguing with the logic.

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